We have discovered that a novel protein, follistatin-like-1 (FSTL-1), is highly expressed in the joints of mice and humans with arthritis, especially at the interface of synovial pannus and eroding bone. A key role for FSTL- 1 in arthritis progression was confirmed by suppression of disease by FSTL-1 neutralization. Our studies indicate that FSTL-1 is a co-stimulator of T cells. We will characterize FSTL-1 and its contribution to inflammatory arthritis in mouse models of disease, with detailed study of T cell activation. The first Aim is to determine the role of FSTL-1 in the normal joint. Our studies demonstrate that FSTL-1 is produced at low levels in the adult mouse joint. FSTL-1 is induced in osteoblasts by TGF-2, a key bone regulatory factor, and FSTL-1 is an arthritis progression factor, but the role of FSTL-1 in normal bone and joint physiology is not characterized. We will determine the cells responsible for FSTL-1 production within the joint during embryogenesis and post-natal development. We will characterize the role of FSTL-1 using a new FSTL-1 hypomorphic (knockdown) mouse by assessing the effect of FSTL-1 under-expression on joint structure at birth and during development to adulthood, bone formation and architecture, bone density and strength, and cartilage integrity. The second Aim is to determine the contribution of FSTL-1 to arthritis. FSTL-1 is induced by IL-12 and FSTL-1 is increased in arthritic joints, where it plays a pro-inflammatory role. These findings suggest that bone is not solely a target of arthritis, but plays an active role in joint destruction. We will characterize the contribution of bone to arthritis progression, focusing on FSTL-1 as a mediator. FSTL-1 will be over-expressed by gene transfer, under-expressed using the FSTL-1 hypomorphic mouse, and neutralized at various times during arthritis using anti-FSTL-1 monoclonal antibody. We will compare the effects of varying FSTL-1 expression on the inflammatory pannus, cartilage and bone formation and erosion, bone formation rate by dynamic histomorphometry, changes in mineralization by micro computer tomography, changes in osteoclastic activity and matrix cells, and expression of pro-inflammatory cytokines induced in response to FSTL-1. The third Aim is to determine how FSTL-1 activates T cells and induces IFN-3 secretion. FSTL-1 promotes inflammation by enhancing IFN-3 signaling. The inflammatory response is dependent on T cells, as T cell depletion abolishes FSTL-1-induced paw inflammation. Furthermore, FSTL-1 prolongs expression of the T cell activation molecule, CD25. To characterize the T cell activating properties of FSTL-1, we will determine the T cell activation phenotype induced by FSTL-1, whether FSTL-1 stabilizes TCR mediated signaling by inducing anti-apoptotic molecules, whether FSTL-1 stimulates T cells directly or indirectly, the receptor for FSTL-1, the protein structure necessary for FSTL-1 activity, and whether FSTL-1 has additional actions on inflammation. Characterization of FSTL- advance understanding of arthritis and may provide new treatment options.